Why you should hate the billable hour as much as your agency does.

Would you rather buy time or buy value? Do you want to haggle over hours or do you want ideas that build the momentum of your brand and provide solutions to your business challenges? If you had to choose (and could only choose one), would you select Efficiency or Effectiveness?

Before you answer, consider this: efficiency is a total focus on costs – keeping costs down, doing what you need to do as fast as possible at times at the expense of quality or critical thinking. 

'efficiency is a total focus on costs – keeping costs down, doing what you need to do as fast as possible at times at the expense of quality or critical thinking.'

OK, if the headline didn’t give it away, you get where this is going.

I am pretty confident most Marketing and Communications professionals would select Effectiveness. You want your campaign or communications efforts to deliver powerful messages, create bottom-line profitability or encourage consideration in changing habits.

That’s why I am such a strong proponent of professional knowledge firms like marketing and communications companies moving away from the billable hour. And that’s why you should want this too. You should expect value to be delivered in a thorough understanding of your business, industry and stakeholders, exceptional strategy, powerful, breakthrough creative and a commitment to the craft of our industry.

I have had the great pleasure of engaging with Tim Williams, founder of Ignition Consulting Group, and a noted author, international speaker and thought-leader on the subject of creating greater value for our clients. One of his core messages is 

moving clients away from a focus on Inputs (hours), to Outputs (a specific deliverable that will meet objectives) and ultimately to Outcomes (measurement-based and relevant Key Performance Indicators (KPI’s) that will deliver results).

Further reinforcement of my position against billing based on time and not value is when, how and why this practice came to be. The labor theory of value dates back to 1867 and is a major pillar of traditional Marxian economics. The theory's basic claim is the value of a good or service can be objectively measured by the average number of labor hours required to produce it. There is nothing in this model that accounts for results, or the pleasure its owner gets from it (demand) and its scarcity value (supply). It is simply the cost plus mark-up of that time that determines what the product or service is worth, where the owner strives for efficiency first and effectiveness as a nice-to-have.

If the argument between Efficiency and Effectiveness is not enough and you simply can’t wrap your head around not having the comfort of billable hours as a security blanket to hold on to, let’s review another flaw with the hourly rate approach.

We have encountered clients who have requested what our hourly rates are and then compared these rates with other agencies. We avoid, whenever possible and for all the reasons mentioned, posting our hourly rates. We do so not because we are concerned that they will be deemed too high, but more so because when comparing these with other agencies, they are irrelevant when looking at the value that each provides. Here is a simple example of that position:

  • Agency “A” has a blended hourly rate of $150
  • Agency “B” has a blended hourly rate of $185

Is Agency “A” the better deal?

  • Agency “A” invoices the client 20 hours for that output or $3,000.
  • Agency “B” provide the exact same output in 10 hours or $1,850

Simple math would suggest not.

Often the best opportunity to learn is stepping outside our day to day lives and look at other industries or sectors for best (and worst) practices.

'If you had a partially blocked or leaky heart valve and needed an artificial valve replacement, I’m pretty confident that who you chose to do it would not be based on how many hours it would take the surgeon and what their billable rate was.'

I recognize this service is far more serious as it deals with life and death but the success and the effectiveness of your marketing and communications activities can have a significant impact on your business and the company's livelihood.

As a business owner, I avoid engaging with a law or accounting firm that are only prepared to offer me a bill by the hour (input) solution vs a fixed price for a service (output).

We recently acquired another agency and engaged with a law firm that provided a fixed cost for helping us work through the deal mechanics and the Share Purchase Agreement. We were not prepared to enter into an agreement that was simply going to invoice for every hour spent. In that scenario, I would have no idea where that final invoice would be. The law firm I worked with had significant experience in this practice area and they provided a price at the outset for the desired output that I was comfortable with.

The same theory applies with our accounting firm that provides an annual review engagement for our company with a pre-determined price for that service and based on a pre-agreed upon scope of work. I see the value in what they provide for the cost of that service and feel good about that partnership because I am not concerned about hours that may or not be accounted for. I also understand if we change the scope of the work, we will pay more.

There are numerous experts in our industry who champion the philosophy of selling value or effectiveness vs inputs or time. I have mentioned Tim Williams earlier. Blair Enns, CEO of Win Without Pitching sales training and coaching program for creative professionals and David C. Baker of ReCourses Inc. are also two thought leaders in this area.

I would challenge you and your agency to consider moving away from estimating and tracking the hours spent on your business and move to simply asking for thinking and products that are effective and move your business forward.

If you'd like another perspective on this topic, I would highly recommend subscribing to Blair and David’s podcasts at www.2bobs.com and Tim Williams’ Propulsion, the Official blog of the ignition Consulting Group, www.ignitiongroup.com/propulsion-blog.

If you want to learn more about our value-based billing model and approach, reach out to me to get the conversation started! 


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